Of the many ways the everyday person can easily and effectively pay off their credit card debt, debt consolidation is another popular route that many people choose to take to become debt free. Like taking out a personal loan, the benefits of debt consolidation are that you will be free of the extra high-interest rates that credit cards typically have, so you will be able to pay back your credit card debt without the interest rates if you have credit card debt on multiple cards.
Debt consolidation can be difficult to understand. Many who have not ever taken out a debt consolidation loan may have certain misgivings. Will you qualify? Do you get to determine how the money is spent? What if you want to keep some out for incidentals or emergencies? Where is the best place to find a consolidation loan and what sort of credit score do you need?
Qualifying for a debt consolidation loan to pay off credit cards is easier than other types of loans. In most financial institutions you only must have a credit score of 650, though some lenders have accepted scores as low as 580.
Credit unions tend to offer the best rates and tend to work with the individual more, while larger, traditional banks have more to lend.
A common myth with debt consolidation is that the bank approves you and then deposits all of the money into your checking account, or hands over a big fat check to you. This does not happen. Most banks want to know which bills you are paying off, including credit cards, and then they send the payoff amounts directly to the creditors on your behalf.
If there is any overage, then this amount is deposited into your account. In general, do not expect to have thousands of dollars left over.
Certain of your debts may not benefit from being a part of the consolidation. For example, student loan debt is often already at a very low-interest rate, and the government sets your monthly rate based on your income level.
Debt consolidation loans work like this. First the bank sits down with you to determine which bills will be consolidated. Then the accounts are paid off, and the sum total of all the money spent to pay off the bills is what you will pay off via the loan. The longer the loan term the lower your monthly payment will be.